UK – Barclays Global Investors reckons pension fund trustees, sponsors and advisers are making sensible decisions regarding liability driven investment – and that the shift from equities to bonds is not as pronounced as reports suggest.

“Over the course of the past year we have received a significant number of inquiries from schemes wanting to understand their liability risks more clearly together with the various strategies available to manage these risks,” said BGI’s Tarik Ben-Saud and Stuart Jarvis.

“However, in all cases, none of the decisions to adopt explicitly "liability-driven" investment strategies was taken lightly,” they write in a letter to the Financial Times.

“Full consideration was given to the level of yields, the impact on expected return together with the overall impact on the risk profile of the investment policy.

“In almost all instances, the implementation of liability-hedging strategies was executed in tandem with return-enhancing strategies (eg, increased active management, property, credit and so on) and usually involved using derivatives such as swaps to achieve more effective implementation.”

While there had been some selling of equities, the pair say, "There has been nothing like the extensive switching intimated in the press”.

Instead, there has been a switching out of domestic UK equities towards international equities - improving diversification. And there’s a gradual switching out of equities on the basis of relative value-testing.

“Overall, trustees, sponsors and advisers are making sensible decisions around the identification and quantification of risks, deciding what risks they wish to take, what risks they wish to eliminate and where they should seek investment returns.”